ML20108F413
| ML20108F413 | |
| Person / Time | |
|---|---|
| Site: | Millstone, Seabrook, 05000000 |
| Issue date: | 12/31/1983 |
| From: | Huehmer H, King F MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC CO. |
| To: | |
| Shared Package | |
| ML17054D536 | List: |
| References | |
| NUDOCS 8412200454 | |
| Download: ML20108F413 (80) | |
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I983. From questions and reflection came reports, it was the year that oil prices, in a plans and presentations. But, from that process we seemingly unending upward spiral for nearly ten also obtained something less tangible. We secured years, declined. a better understanding of both the commitment it was the year that many in the industry and the mandate which marked our first decade-realized that many parts of the nation, including a decade which saw a power supply program and New England, could face shortfalls in electric two major power plants take shape. And, we found capacity in less than a decade. in that commitment and that mandate the raw And, it was the year the Washington Public material from which to devise a course of action for Power Supply System suffered the largest the next two decades. municipal bond default in history. Thus, the 1983 Annual Report is a For MMWEC, the events of 1983 triggered progress report, but it is also an appraisal of an avalanche of questions. There were questions MMWEC's ability to face the challenges of the posed by the linancial community, the press and times and to bring to the years ahead the same the public. Those questions led us to perform an skill and dedication that have marked our first ten in-depth appraisal of our strengths and years. accomplishments and to take a hard look at the challenges we face in the future and our strategy for addressing them.
MMWEC is the product of a long, To make the most of their inde- The plans aredesigned to minimize IM itS TStdifficoitst,uggiefe,municipaipowe,pendence many of the municipei eiect,ic membe,s. powe, costs and to assu,e that independence. That quest began in 1889 departments decided to work together. each member has a diverse mix of reliable when the first of Massachusetts' municipal They knew that as a group they could take resources. With a balanced resource mix t6M #64 electric departments came into being, advantage of economies of scale-pre-The municipals were created because viously enjoyed only by large electric members have the flexibility to deal with fluctuations in load growth, with unit g the citizens of 40 Massachusetts cities companies, while still maintaining their outages or with the delay or cancellation J J and towns wanted the freedom to estab- autonomy. To this end they founded their of a power plant. The resources can be
, , , lish. own and manage their electric util- ownlointactionagency,theMassachusetts units jointly owned by a group of utilities, ggr . ities They wanted the assurance that Municipal Wholesale Electric Company their utilities would work for their in- in l%9.When MMWEC began working for units constructed and operated by MMWEC or power obtained through short- and
, terests by presiding them with re!!able its members, its directive was to plan and long-term contracts with other utilities.
g Qg g g electric powerat the lowest cost possible. coordinate power supplies which would Over the years. these consumer- ultimately replace the energy they pur-MMWEC finances the acquisition of these resources with tax-exempt securities owned utilities have worked hard to chased from other utilities. In 1976 In 1976. when MMWEC began its fTOM M6 achiesethatgoal,thoughattimessignifi- MMWEC. acting under state legislation, cant obstacles blocked their path. Until became a public corporation and its program, the electric utility industry was entering a period of crisis. The U.S. and recently most of these systems had to buy missionwasgreatlyexpanded. Asa public most of the world had sustained the first OMMd Q. the bulk of their power from private corporation MMWEC performs a variety electric cornpanies at less than favorable of utility services for its 34 members of the two maior oil supply disruptions which were experienced in that decade. rates Prevailing laws made it difficult to Forexample.MMWECforecasts the The shocks and aftershocks from this break free of these arrangements in the future load and energy requirements for event continued throughout the decade. end. howeser. the municipals waged each of its members The forecasts are Fuel prices, as well as interest and inflation successful battles before courts and compiled usingstate-of-the-artcomputer rates, shot skyward. The growth in electric regulatory agencies and camed the right models and data gathered from a variety demand declined. Power plants were to stand alone as independent electric of sources, including the managers of cancelled and electric rates increased. utilities member electric systems The forecasts The energy crises of the 1970s have provide the basis for creating individual changed the nature of the electric power power supply plans for each member. Industry and have changed the focus of MMWEC's efforts as well. With the founda-tion of its power supply program in place. MMWEC is now seeking to optimize its available resources and to contract for supplemental supplies of power and energy to meet its members' needs in the most cost effective and efficient manner. h
l Mamber Pcrticipcnts' 1983 Fusi Mix Other Natural 1% Gas l As the energy picture haschanged. . 8% l the MM%EC public corporation has also g esched Frorn a small planning staft Coal 18% .- {h '9 ' ' I MM%EC has grown into a corporation ' emplaing oser 150 people. We h.ne f .f added new senices built and staffed a .- N .
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l power plant and become an effectne ji '4 participant in regiorul power planning and operations. /< - x In recent years MM4EC has under-gone an important transitiort After a
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j decade of building, the corporation has < #- Ag f _ ' undertaken an ambitious effort to resiew a ..MdV ' 4 - 1 its pnc:itiesand responsibdities MMwICs f '" l board of directors insta!!ed a new general g.< L, -
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Y manager in 14H and underwent . major f[) e, - A? _ reorganizatiort Out of this assessment '$s e2 will come a corporate strategic plan which [h(h[f f ~
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will guide MM4EC into the future, a t future which will strengthen MM%ECs $ initial resolution to bring its members the , best possible utsty senices at the lowest
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Oil - Nuclear W A, l 35% - 33g Francis R King. Presdort I Ssaceit began perkrnring pver surrfy rLarning studies in 1973. MMw1C has stressed the need kr each ofits mentber systems to have a dnerse and balanced mix of generating resources available to meet its needs Swk a min redwes a utikty's dependence on any one resource. thus lowering the bketshmi of capacity shortages and the need kr higinest verLuement pwr danng pLW outages it also reduces a system's dependence on any one fuel typr. therrby kssening theimpact of furf prweimreases Thrs chart shows the currrat awrage fuel min kr the MM%TC menthership in the sjears aheat MMwTC planners wiB continue to seek ways to further dacrsify this min. s
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in Julyof 1983 theWashington Public in response to questions about -At the time of the default. WPPSS Power Supply System (WPPSSI defaulted public power and joint action agencies, was in the midst of a massiveconstruction on 52.5 billion in bonds issued for its MMWEC produced a newsletter which prograrn. In contrast. more than half of the Nuclear Projects 4 and 5. It was the single highlighted the differences between it capacity in MMWECs power supply pro-largest municipal bond default in history. and the Washington Public Power Supply gram is completed and in operation. In The esent set off alarms throughout the S> stem. including these- fact, member participants have been 0WM ib fia aciai woria aad the utitty iaoustry. -=uwsc aaa its members have nevias debt service oa boaas issued to Howcouldit have happened? Howwould full and explicit authority through Chapter finance this capacity for about four years. g g it affect the municipal bond market? And. 775 of the Acts of 1975 to enter into Power -MMWECfinancesits powersupply 5 tU w perhaps most ominouss who would be Sales Agreemer.ts, the contracts through program under a smgle bond resolution
, next? which member systems become partic- and the bonds issued are secured in g(gg r g ipants in MMWECs power supply projects. common by certain payments under Specifically. Chapter 775 allows MMWEC Power Sales Agreements entered into to include in its Power Sales Agreements, with the participants in exh project.
Nhk( a so-called take-or-pay provistort This -MMWECs financing and power stipulation provides for the payment by supply programs have been approved by participating members"of unconditional two state agencies. With the exception of obligations imposed without regard to a recent filing which is currently pending, whether the facility iin a power supply all of MMWECs requests for approval to project)isundertakertcompleted opera- finance its power supply program have ble or operating," A provision in these been approved by the Massachusetts contracts that calls for participants to Department of Public Utilities and all of assume the shares of the debt and capa- MMWECs long-range forecasts hase been city of . d_= faulting participant is also accepted by the Massachusetts Energy specifice..y authorized by law. It was the Facilities Siting Council. lack of such clear-cut statutory authori- -The MMWEC organization a!!ows zation which made the WPPSS default maximum participation in the company's possible. decision-making process by its members. Seven of the nine members ofits board of directors are elected by the membership itwo are appointed by the Governor of Massachusetts) and members participate through the frse board of directors' adsisory committees and periodic membership meetings. m
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g , i I _' - - ! l , in additsort MM% ECottetsits mem-i bers a wide range of utihty senices. including load forecasting power supply p-l planning and tavesempt hnancing and y. p (tt { has successtu!!> constructed and operated , y 7 7'" t two modern power plants of its own. - irnestigated and esecuted many cost- -
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power. played an ettectne role in the - regional power pool. and managed a . f;g; g - @7;.7 ti.f,.,%fDM'If {' 3 prudent bruncial program for its members, ! a program that includes cner si bilhon in - -- f .. _ . . _ , tavesempt resenue bonds , ,, ( e Q
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As persuasise as these points are - indaidually. together the) add up to a r m- *O , j compelhng story MMWEC brought that - ' stor) to the fmancial communit) during .-
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< the latter halt of 14M The program was , __._ , well receised by the mar.) financial '
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anahsts and bond safe men who siewed ow, we wIII tell that , - . .
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ta W cw erat Mane hkarJ K %me a paum nakn en 4aned MM%EC's rearams is sanat -
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Ame enws rJ :w kre,vu 4 MMw LC, talecJ acent afs strrw4ks a=J asumelnketuts a=J notcJ tk Jacmtre [h. .p' 4 gg a' h and settante at the uwsannawl ut&tws skuk empnse Muw CC -- - ~ ~ ~~~ l.
MMWEC is the union of a diverse The third level is project partici- The 34 MMWEC members are the fh group of electric utilities just as metals pation To date. municipal. cooperatively- primary focus of MMWECs forecasting can be joined to form an alloy stronger owned and privately-owned utilities have planning and financing activities. They than its components, the fusion of the participated in MM%EC projects with the constitute a varied group, ranging from h h h h strengths and talents of these utilities is consent of the MMWEC board of directors, cities with populations as lar synergistic yielding a quality service though MMWECs bond resolution re- to small towns Some systems serve more quires that at least 80 percent of the than one community. Some members Of pHNidP organization The utilitiesassociatedwithMM%tC capacity in any one project be under have growing industrial or residential
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- take part at one or more of three possible contract to municipal utilities in Massa- loads, while others are relatively stable. A OWM6d Ntlllfles ,Ievelsofinvohement.Themostexclusive chusetts Project participants sign Power few have generating capacity of their own.
o, o, pa,1ici ,ation is m e m be,shi , Sales Ag,eements and ,ece,ve the ,uii wsiie most acqui,e thei, powe, f,om
, , because it is open only to municipal benefits of the joint ownership, econo- MM%EC and other sources. Together Wit Ml N6 electric departments in Massachusetts mies of scale and tax-exempt financing they serve over 10 percent of Massa-Membership accords utilities certain associated with the MMWEC powersupply chusetts' electric load and meet the needs rights and obligations For example. prograrn of more than 9 percent of the state's
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StreMathS y "inemembersof n theboardof directors One cther utility. the Pascoag. R.L Fire Ithe remaining two are appointed by the District, is a service participant. A total of hMd Meeds
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have input into MM%ECs decision- seven municipal utilities in Vermont, three making process through their participa- electric cooperatives itwo in Vermont tion on the board and the board's five and one in Mainei and a Vermont-based cornmittees Members also hase prefer- private electric company-are project ence rights to any and all capacity or participants The I2 non-member project energy initia!!y acquired by MMWEC. participants are invohed in only two The second level is service partici- MM #EC projects and have entitlements pation This t>pe of irwolvement is open to less dian 6 percent of the capacity in only to consumer-owned electric systems the power supply prograrn Service participants, like members are entitled to benefit from MM%ECs utility services To become a senice participant, a consumer-omned systam must sign a Service Agreement which outlines the senices MMWEC will provide and the obligations of the participating systern
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c h-{v. _2 . g A arteer Pedu, anJ Perseenri Csammatter .cre ew. Mewem air R.hrJ smene sweaarr The Propnf Canstriuties anJ Piant Operations Ce==itter at i. ort Mr.ccrs are Curtis Lemum w%=ra, mar <%s. Yrna. Pawn h.-.ms .hr%.= Chnw wwthma measuarv Net wrr=ven.a. neamaar, LA:irkw ,.ar=wn Frant bad MVWEC Prrwirst-var (~rrmen RAyr Berfly .anaaer .. - . ,_ _ m . ,. m . m _ s a _ s. ~ . , m mau s.,,. . _ _ 1,.,-w m .u _._ m ,. . m.a,J m.~, -- .- -. c. , _ u-., . . R_a. _ -.a .._ sm. s.. ur . __ _R.~,,..._._P.,_,, m,. s..,. Elad8tionarr Pa nA. W.e B4* war, ofkr .anaarr ReaJ;nd Level of Participation Senece Progect Senke Protect Senice Project PartKapant Member Partwipant Partwipane Partripant Member Partripant Partwipant Partxspant Member Partwipant Partkipant w r e %~ d
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I gn the parlance of public power MM% Noneof thefivecommitteesexem-MMWEC s mmICisk ownasarinta-nage-, u_'EC has obtained financing e Massachusettso.part- piifies this com mitm.ntto cooperation MMRIC works for each of its members ment of Public Utilities on 16 occasions and communication better than the Mem-indhidua!!y. prepanng forecasts of rapacity One apprmal is pending MM%EC also bership Committee. This body. created miSSiOM 4Md edeneroregeemtseg som to the Massachusens Fmgy in N. serses as a Wem for the plans for meeting those requirements Facilities Siting Council regular forecasts membership. It works to keep the board But. MMWEC also works for its members of the future energy requirements and aware of the Eoals and objectives each Fg collectively, acquiring bulk supplies of the projected resources to meet such member system would like MMWEC to
, electnc energy and capacity on behalf of requirements for each member systern pursue. In this way. the actions of the many members and financing those MMwECs current forecast is under review. board and the actions d the MMWEC e acquisitions in bulk as well. In this way. %hile MMWEC must seek approval staff will be in tune with the requirements the MMWECmemberscan maintain their from state regulators for forecasts and and desires of the MMWEC members gg mdependence while sti!I benefiting from financings, the ultimate control over its MMWECs power planning mission the economics of scale. the financial programs and plans lies with its members is merseen by the Power Planning and security and the influence of a large. The members,through the MMWEC board Operations Committee. This committee
{ Igg diverse electric systern of directors, set MMWECs policies and resiews staff forecasting methcds and ALM %ECwasauthorized to perform direction The board works with its five results, staff studies related to the committees which provide recommenda- development of power supply projects estabheshed. these
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~ ~ under ~ ~ ~the-prosisions--i - ~of ~ ~ ~ ~ ~ ~e also empowered ALMWEC and its mem- tia!!y.a cross section of MM%EC. consist- effects of the policies and procedures of bers to enter into the types of contracts ingof membersof the board of directors, the regional power pool on member and ageements necessary to carry out managers, commissioners and staff of systems < The committee is also responsible
!LtMWECs mission membersystemsand MMWEC.By blend- for advising staff in these areas as well as ing the experience and expertise of the in the areas of power operations, power membership and the MMWEC staff the contracting, wheeling and transmission committees foster the t>pe of commu- The construction of MMWECs own nication and cooperation that make a power plant, the Stony Brook intermediate joint action agency effective. and peaking units. was supervised by the Project Construction and Plant Operations Committee, which continues to watch over its operation This committee also evaluates potential generating and trans-mission facilities owned or planned by other utilities, analyzes cost and schedule estimates for current MMWEC joint-ownership projects and reviews operating budgets and staffing requirements for MMWECs operating projects.
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[ AJminntration Committee ahn h retom- , g W 7-l mends at t ion !< t he txurd < ork erning ~ [Q j. ' adm m:st r at n e and pr oiet t '
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m t ount mg tulhne and t allet tion prtw e- / _ I dures annua! < 0rporate finant ul state- 9 ments nsuarx e of shart and long term ._ -gY bs 2;'.P w -
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pr at edures and the welfare at its statt are the ont erns at the Pola s and Personnel
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t,u~ ness relating to \1\1% E t personnel
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l nu> es ret < ,mmendations an administra- i in.e poN s * ' the txurd at diret tors The membes at thm < ommittee supen ne k h i rY~ waec -ind sal an prattnes guide the - csc of unien s 1ntrast negot utions ) . . . - . ^-
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pr m Mc general duet tion with respet t to A - f pe rss ,n nel and organuational desclap- I* , N mer t and momi< r the emplosee benefits ' pr < <gr 3r! , ( 1 L
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l l Tn: Fenan<e and Busaness AJmsnestration Committee < tern in vwon un Hudson Memt'en are %eil The Power Planning and Operations Committer uhnet meettna In Peahdu Members are Norbert l
% rva u manaw HosJen , narrman Brua Patten m anaaer rear.ody - us e , Matrma n Georae learu Rkmervn manaaer Readuna karrman w elham w allac e manaaer wakeheld- me thanrman lkmaid me e Hkee % nact %Jove t4 ant surenntendent lkmen RaumonJ Hastavas ke manaaer Memma, %es ton manaaer Hvanntree h+n Dunteu manaaer %ddletvrouak h,serk %radea manaaer Hinakam l % m. U:r* . elvdier Wr'n A11lrtorouJk u aune lwrrna: manaaer soutn HaJieu lame Ha:en manaaer Roaer Allen aststant manaaer Holuoke h+n %IIer senoor staH enatneer North Altleh,rc sak Anthenu t e .'!Je% F io9 n Q % t%hn( sapennte nJent L Om ord lchn g rog,ker g Orn nrtssgener Readma %mterro eleg tntal enameer HudWn t ramis PaJka enameenna sermes %urerYF%or Sk re% 8bu rk Rh kard 1 brroul awstant surenntendent Vmord Robert Merru manaaer Rowleu lerru Tomasko elet trhal encrau Juret tov %esttrelJ R maid TahroH rnmitral enauncer Peahdu
A building must have a strong foun- Prior to 1973 forecasts called for the In 1973, the oil embargo drastically MMWEC has datienifitistoendu,ethetestsef time. demand fe,eiectricity te grew at a , ate ef changed the face ef the erectric utiiity Similarly, a power supply program must nearly 8 percent a year throughout New industry. As energycosts rose. load growth be built on a solid base of reliable and England and the rest of the United States. slowed from nearly 8 percent a year to N economical electric power resources. New England electric utilities were plan- about 2 percent anr.uc.!!y. The reduced Power planners face the challenge of ning to build thousands of megawatts of load growth made much of the generating y designing a power supply program to new generating capacity, including several capacity then on the drawing board surplus, POW 6T S54 I match projected load growth, a constantly sizable nuclear power plants to meet the at least for the next decade. Of the 12 changing target influenced by a myriad of rapidly growing demand. generating resources then in the MMWEC factors. On behalf of many of its members, power supply program. 6 were cancelled. P ", When the MMWEC power supply MMWEC became a joint owner of all of These cancellationsiwhich occurred during program was begun in the early 1970s. its the power plants then planned or under the early planning stages, had a minimal g g g g chief aim was toallowMMWEC members F to end their long-standing reliance on construction in New England. The program economic impact on the MMWEC systems. objective was drversity, such that there Threeof thesix remainingunits.the
, , wholesale power contracts with private would be no over-reliance on any one Stony Brook intermediate and peaking gg
- utilities and to meet their needs instead with a mix of generating resources they unit. This capacity was expected to meet units and the W.F. Wyman Unit No. 4. an MMWEC members' requirements for oil-fired facility in Maine, are already in selected themselves-resources priced baseload power power which must be operation and serving MMWEC members.
at their actual cost. available around the clock. for the re. These represent over 60 percent of the mainder of this century. MMWEC also capacity in the current power supply made plans to build the Stony Brook program. By l987,84 percent of the program units to meet much of the members' should be up and running as Seabrook initial requirements for intermediate and Unit No. I in New Hampshire and Millstone peaking capacity. Unit No. 3. a nuclear unit in Connecticut, are scheduled for commercial operation. The remaining unit. Seabrook Unit No. 2. is under re-evaluation.
MMWEC Members' cws Historical and Prohcted Load ; j 6300 M Residential 5600- 36@ Industrial G Commercial 4900 E Municipal Other 4200 - 1 3500 - 2800 - i - s 3 2100= ' Accurate load fornasts are the foundation of MMWECs power supply planning efforts. MMWECs most recent llI Y
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forecast tiefn shows that the MMWEC aggregate load should increase at a rate of about 2.4 percent per yearduring w
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! 700.y N y m -KY h ~d M D O M M MZ5E -- - _ N. . b ' W :' .. h n h{ ,,,y,,,,,,,,,.,,,,,,,,,,.,,,,,,,,,,,,,,,,,,,,,yy,tc.,,,,,,,,,,,,,,,,,,,,,y,,,,.rhe Seabrook Units Nas. l and 2 lrighn arelocatedin Seabrook. New Hampshire. MM%T.Cowns l l.b rercentof these l unds The Mdistone Und Na Mlefn is undaconstrucG>n in Waterfod. Connutkut MMWEC has a es pacent l 0= , , , ,.. , , , 77 80 83 86 89 92 95 98 i"'"'S' i" '*i5 ""d-
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The capacity from Seabrook Unit I, MMWEC's final recommendation The powersupply program entered due on line in December of 1986 by called for a reduction in the level of work a new phase in the 1980s. With a solid yy {
;.V11Y1 w L MMWEC's estimate, will meet a sizable on Unit 2, allowing the maximum amount base of resources already assembled.
portion of some members' power needs of effort and financial resources to be MMWEC set out to find ways to make the in the latter half of this decade. Because of devoted to the timelycompletion of Unit 1. mt , effective use of those resources and the importance of this resource, MMWEC The joint owners unanimously assented to optimize the capacity in the program 6as tinanced has been taking an active role in finding to that proposal on September 8,1983, with timely purchases and sales of energy. ways to improve its management and voting to reduce work on Unit 2 to the For example, MMWEC negotiated a il5 pT0gTa m oversight of Unit t,which has experienced minimum level until fuel is loaded in contract for 100 megawatts of capacity significant cost increases and schedule Unit I. Although a delay in Unit 2 will from the Pt. Lepreau nuclear unit in New delays in recent years, increase its cost, the owners agreed that Brunswick, Canada. The Pt. Lepreau unit
- To this end, MMWEC formed an in- time was needed to assess the economics went on-line in early 1983 and has logged house task force of engineers with nuclear of Unit 2 and to study potential attema- an exceptional operating record. MMWEC experience to review the cost and schedule tives to this resource. MMWEC began has also negotiated dozens of energy-estimates issued by the lead-owner, Public looking at attematives to Seabrook 2 in saving short-term contracts for members Service Company of New Hampshire 1982. Among the options under study are through various programs and has served (PSNH). Based on the findings of the task nuclear or hydroelectric energy from as its members' representative in negoti-forr , MMWEC made three major proposals Canada, coal-fired capacity from New ations which culminated in an agreement to the loint owners of the Seabrook units. York or from potential plants in New between New England and Hydro-Ouebec The first was that the joint ownership England, and increased demand control in Canada to build a new transmission agreement be changed to allow dispro- and energy management for MMWEC line which will bring hydroelectric power portionate ownership of the two units. members. to members later this decade from the This was approved, though no owners in a report issued in May 1983, massive lames Bay project.
have yet found buyers for capacity from MMWEC's task force determined that either unit. The second proposal called PSNH's cost and schedule estimates for for the appointment of a management the Seabrook facility were too optimistic oversight committee. In lieu of a commit. and developed more realistic estimates tee, the owners voted to retain Manage- for MMWEC planning purposes. MMWEC ment Analysis Company, a recognized has been using projected commercial expert in nuclear project management, to operation dates of December 1986 for monitor progress at the construction site. Unit I and November 1992 for Unit 2. The review cost and schedule estimates and task foire also recommended that MMWEC make monthly reports to the loint owne rs, use a total direct construction cost figure In addition, PSNH hired Fuel Supply of $558 billion for both units. (This figure Services Inc., a subsidiary of Florida does not include Allowance for Funds Power and Light, a utility which built four Used During Construction.) operating nuclear units within excep-tional completion schedules, to work with the new PSNH management team in directing the Seabrook construction.
Dollars in mill. ions MMWEC Revanuss and Other Incema i 200-
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average net interest cost of 9.3 percent. It fi 6 g is estimated that just over $400 million in h~/Ny N .@ iM bonds will be issued in the next few years i40= h@j jf- g* O C d.j &p 13 n 9p 7gQ to fund the program through 1986. These ((~g Power Sales Agreements (Projects) jg/g bonds are expected to be adequate to gj AW complete Seabrook Unit No. I and -%J-)?- Dm W. Millstone Unit No. 3, and to keep Seabrook 120= gt,W;ds,Q t t Unit No. 2 at a low level of construction. Other p w; ei- g f g" %i When MMWEC began its power
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W ,QW r ~v - % W - M .'* Q f' m. bl%~%? D *hj-A;W Q* lf2N,'Sf; , u MM 1978 1979 1980 1981 1982 1983 Prior to 1980, MMWEC's primary source of revenues was interest earned on investments made uith its MMWEC's power supply program. MMWEC first began bdling members for debt senkr on bonds issued ta lund bond proceeds. In tne late 1970s, MMWEC began to negotiate more and morepowerpurchasearrangements forits power supply proints in \970 &n payments tameducon the Wymon Unit Nr. 4 Proint. Debt senkepayments members and these contracts became an important source of revenues by l980. Revenues derwed from power began on bonds issaa % yms Stony Brook units in i98 l and l 982. During the nentdnade, revenues from debt purchase contracts will continue to increase in the years ahead as such contracts-like the 100 me gawatt purchase senke from these rower sales Agreements willincrease as the seabrook and Millstone units begm operating. from the Canadian Pt. tareau unit uhich began operating in l983-bnome increasingly important parts of
MMWEC believes its financing pro- For MMWEC,1983 was not just a -Inflation. high interest rates and gram to be both conservative and prudent. For example, MMWEC attempts to finance h[ h hh h year for retrospection, but a time for regulatory pressure have greatly escalated planning and action. Having created and the cost of building new power plants cash flow requirements for its power financed a power supply program for its Therefore, MMWEC member participants' supply projects for at least a year in advance. This gives MMWEC a great deal 0 FOM , members. estabiished and successruiiy fixed costs--these costs essocieted with demonstrated programs for optimizing the construction of the Seabrook and of flexibility when issuing bonds. After a careful study of the market. bond issues MM J.YL.YI member power supplies and constructed Millstone units-are high and rising. and operated two modem power plants. -High fixed costs, high fuel costs can be timed to realize the lowest interest MMWEC set out to build on those accom- and inflation will add up to electric rate rate possible. plishments and refine its strategy. increases. MMWECs financing practices are To develop its strategy, MMWEC -Despite the surpluscapacitysome conservative in another respect. To protect , , , began by determining what challenges members will experience during this the interests of both the membership the future will hold. Those challenges are decade, load growth could leave these and MMWECs bondholders, MMWEC has products of a decade of crises for the same systems with too little capacity by built several safeguards into its financing . y electric utility industry. Oil embargoes, the early to mid-1990s. program. One is system financing and declining gr wth rates, high fuel and in meetingthesechallenges,MMWEC another is the step-up provision in the M 6 m 6TS construction costs, inflation and increased must keep in mind its two fundamental Power Sales Agreements. Our most im- pressure from govemment and special goals: minimizing power costs and maxi-portant safeguard, though, is the depend- OW6T interest groups have conspired to create mizing reliability. These goals form the ability of our municipal systems. They many hurdles for the lndustry including framework for MMWECs long-term strategy. have long-standing commitments to sound financial practices. Many of these partici- COMS 4Md MMWEC and itsaremembers. most important these: Among thePower Costs Minimizing pants have been fulfilling their obligations During the next 20 years MMWECs to MMWECand to MMWECs bondholders power planning strategy will be guided for four years, paying debt service due on the Stony Brook and W.F. Wyman projects T650MTC65. by one maiorcoacent: optimizatioa. now that the foundation of the power supply MMWEC is constantly workirig to program is in place, MMWECs focus will find ways to reduce member power costs shift away from majorconstruction projects, and, therefore, consumers' bills. at least for the next decade. This new emphasis will include making purchases and sales of energy and adding new generating capacity in small increments. This strategy will help balance supply and demand and lower power costs by displacing more expensive capacity.
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savings have been calculated. It is esti- 4 0 8 mated that an additional $3-4 million g'3 g'4 35 g'6 87 88 89 90 91 92 93 94 9 were saved during the remainder of 1983. Power Year ending October 31 optimi:ation is the theme of MMWEC's current power supply planning strategy. With its four optimi:atien The power supply program matches new sources of electricity to growing electric demand. Because of declining programs (below) MMWEC can arrange purchases and sales of energy and capacity which closely match each demand in the l970s. some member participants experienced surplus capacity in recent years. However, demand member's forecasted demand to the lowest cost resources available to meet that demand. With these programs, and capacity willbe more closely matched by 1986 when seabrook i and Millstone Unit 3 go on-line. More capacity MMWEC has the flexibility to arrange sales and purchases with periods from one week up to many years. purchases will be needed later in the 1980s to avoid potential cc.nacity shortfalls. Time Frame of MMWEC Optimizations OI7TIMlZATION STRATEGIES Weekly Studies Extended Weekly Studies 9~
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4 i l a MMWEChasseveralprogramsgeared MMWEC will also help individual ' MMWECwillalsocontinueitsefforts Dring the next 20 years, MMWEC to optimizing individual member power members develop and expand energy - to carefully evaluate all potential pur- will have to adjust to new challenges and supplies with sales of energy or capacity, management programs by offering mem- chases of energy and capacity, purchases continuinguncertainty Wewillreviewour among membersoramongmembersand bers technical support and financial- which should both lower member power planning strategies, financing techniques other utilities. These contracts can be as services. Such programs can make better. costs and improve reliability. More power and approaches to forecasting and con-short as a week or as long as several years. use of resources by shifting peak loads to from Canada, such as that from a proposed tracting.Wewillchangewith thechanging . These contracting programs lower power off-peak times, thereby reducing the expansion of the transmission line to the requirements of our times. But, though costs by' matching each member's pro- need for new capacity and increasing lames Bay project in Ouebec. a proposed our challenges and present strategies lected load to the most economical sales and revenues by encouraging the second Pt. Lepreau unit in New Bruns- may evolve our basic com.nitment to our resources available and by assuring that use of electricity during less expensive, wick, capacity from the New York Power membership wili remain firm. It was that , each member has the resources and . off-peakperiods.Withenergymanagement Authority's Niagara Riverand St. i.awrence commitment which sparked the impres-- reserves it needs.- Contracts arranged and a small increment strategy (MMWEC projects and potential coal-fired units in sive achievements of our first decade and l through one program, the Weekly Studies intends to purchase small amounts of New York State will receive particular which has shaped the actions of our Program, saved members about $2 million power from a variety of sources), MMWEC consideration. members for nearly a century. It is a in only a year and a half. hopes to be' able to closely balance At the moment the maior barrier to commitment to insuring that the con-If there is anything that is certain supply and demand for each system. receiving low-cost power from distant sumers of municipal electric departments about the utility industry's future it is that sources like New York and Canada is in Massachusetts have the most reliable it will be uncertain. Dealing with uncer- Maximizing Relis6ility region-wide transmission bottlenecks. power supply obtainable at the lowest tainty requires the flexibility to tailor, on low-cost power is only half of the MMWEC is currently negotiating with cost possible. short notice, a power supply to changing equation for a power supply system. The neighboring utilities to obtain wheeling requirements, to respond to delays or other half is reliability. MMWEC's planning arrangements which will guarantee suffi-cancellations of power plants and to will also focus, during the next few cient transmission capability to get eco- , finance short-term power supply acquisi- decades, on helping to assure that capa- nomical power to its members. In the l tions in the most economical manner. ci:y deficiencies do not materialize. future, MMWEC might seek to become a Making each member system's power To meet the load of each member joint owar in new transmission lines. plan as flexible as possible will also help reliably, MMWEC must be able to accu- in the years ahead, MMWEC will lower power costs. rately predict that load. Over the years monitor new technologies and carefully MMWEC has continually improved its follow plans for new power plants with an load and epergy forecasting techniques. eye to further diversifying the MMWEC MMWEC will concentrate on further im- power supply program. Greater diversity l provements in its forecasting method- will offer new opportunities to optimize ology and also on keeping a close watch member power supply plans. ! l on changes in load by sharpening its ! short-term forecasts. These will greatly ! aid planners in their attempts to optimize nwmber power supplies. O _ l l Richard K. Byme, General Manager
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Treasurer's Statement MMWEC's financial operations continued to expand in 1983, reaching their highest Bonds issued levels to date. Power contrscting revenues and the billings of operating expenses and debt Principal Amount Net Interest service on three of MMWECs projects (the Stony Brook Intermediate and Peaking Projects issue (000) Sale Date Cost % and the Wyman Project) were primarily responsible for the increased activity. MMWEC 1976 Series A $ 75.000 8/26/76 7.2 continued its $30 million revolving credit agreement with a group of banks to financs the 1977 Series A 177,370 7/27/77 6.4 acquisition of fuel inventory for the Stony Brook u nits. The revolving credit agreement used 1977 Series B 83,500 12/ 7/77 6.1 to provide ternporary working capital to finance power purchases being resold to MMWEC 1978 Series A 75.000 9/l3/78 6.8 members was reduced from $17 million tos l 4 million. The new revolving credit agreement 1979 Series A I50.000 8/16/79 7.0 level combined with the fuel financing line are adequate to satisfy the financing 1980 Series A 112.000 8/ 6/80 10.2 requirements for operations while maintaining related costs at a reasonable level. 198I Series A 100.000 5/28/81 12.3 There were no additions to long-term debt during the year and Special Fund, 1981 Series B 100.000 8/ 6/81 13.4 were reduced due to construction and interest payments. This spending reduced the 1982 Series A l 15.000 4/16/82 13.4 amounts available for investment. However, the rate of return on invested funds was 1982 Series B 130.000 10/15/82 10.2 maintained at a level approximating prior years even though interest rates decreased 1984 Series A % 000 , W UB4 1M during the year. S1,212.870 MMWEC actively monitored the financial market during the year to deterra ne the optimum time to finance. It was determined that market conditions were most favorable in Projects Funded to Completion early 1984 and MMWEC sold S95 milllor. in bonds on January i 1. The 1984 Series A Bonds, Bonds Funded MMWEC's eleventh bond issue, were used to provide additional construction funds for Outstanding Interest Nuclear Projects Nos. 3. 4 and 5 and Project No. 6. Nuclear Projects Nos. 3,4 and 5 and (Including Requirements Project No. 6 constitute the remainder of MMWEC's construction program. With proceeds 1984 A Bonds) Outstanding of the 1984 Series A Bonds these projects are now funded for construction cash flow (000)* Bonds requirements and interest at least through 1984 and later for some projects. Nuclear Mix I $180.200 1/1/85 The company is conservative in its financial planning practices. MMWEC's policy is Stony Brook Intermediate Project 176.980 - to fund estimated cash flow and interest requirements for a year or more ahead of Stony Brook Peaking Project 84,680 - schedule. This practice affords MMWEC the flexibility to schedule its financings to take Wyman Project 9.015 - advantage of favorable interest rates and related market conditions. This planning approach helped MMWEC to maintain a secure financial position during the unprecedented Projects Requiring Additional Funding events that were experienced by the tax-exempt markets in 1983. Bonds To be prepared for the future MMWEC has filed with the Massachusetts Outstanding Departrent of Public Utilities for authority to issue additional debt required to finance (including Funded projects under construction. The request for additional financing for Nuclear Project No. 4 1984 A Bonds) Total Cash Flow and Project No. 6 will provide funds necessary to complete Seabrook Unit No. I by the (000) Requirements" end of 1986 and maintain Unit No. 2 at a low level of construction. The approval for the Nuclear Project No. 3 121.590 8/l/85 additional financing is expected in mid-1984. Nuclear Project No. 4 220.I00 1/1/86 MMWEC estimates additional financing requirements of approximately $300 million Nuclear Project No. 5 75.000 1/1/87 fafter the 1984 A bonds) to complete the construction of Millstone Unit No. 3 and Seabrook Project No. 6 325.000 2/I/85 Unit No. I by the end of 1986 and maintain Seabrook Unit No. 2 at a low level of construction Sears Island Project 9,500 - through the same date. The maintenance of Seabrook Unit No. 2 at a low level of construction allows all operating and financial efforts to be directed toward Unit No.1. *The cancellation of Pilgrim Unit No. 2, included in Nuclear Mix No.1 has substantially reduced the fmancing requirements for Nuclear Mix No. I to an amount less than the amount previously issued. The Board of Directors continued the appointment of Arthur Andersen & Co. as Proceeds remaining after completion of the project will be used to retire bonds issued for the independent certified public accountants for the Company. The auditors' opinion and project. surplus funds preliminarily estimated at st i million in the stony Brook Peaking Project MMWEC's financial statements for the years ended December 31,1983 and 1982 are account will be used to retire bonds for that project. included as a separate section of this Annual Report.
* *The funded total cash flow requirements column represents the dates to w hich bond proceeds and estimated investment eamings will be sufficient to meet both estimated construction cash flow requirements and interest requirements on the outstanding bonds issued for each project. The
%9 Sears Island Project is inactive and $8.5 million of unexpended bond proceeds and earnings are available to meet cash flow requirements. If the Project is terminated, these proceeds will be used George E. Leary. Treasurer to retire bonds issued for the project. The data includes the 1984 Series A bond proceeds.
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n - - Auditors' Report To the Board of Directors of MASSACHUSETIS MUNICIPAL WHOLESALE ELECTRIC COMPANY: We have examined the balance sheet of MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY la Massachusetts public corporation) as of December 31,1983 and 1982 and the related statements of operations and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounths records and such other auditing pruedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the financial position of Massachusetts Municipal Wholesale Electric Company as of December 31,1983 and 1982, and the results of its operations and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.
% 4;2Aa C March 2,1984.
Boston, Massachusetts
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Massachusetts Municipal WholesaliElectSc Company - Balance; Sheet. x, December 31,' 1983 and 1982 IDollars in Thousands) ' (DollarsinThousands) ' r
' ASSETS 1983 1982. LIABILITIES 1983 1982 Electric Plant ..
long-Term Debt (Note 41 , , In Service $ 201,375 $ 195.449 Bonds . $1,102,980 $1.108.920 ' Accumulated Depreciation (Note 31 (15.051) 16.973) Notes 3.865 7.265 186,324. 188.476 1,106.845 1.l l6.185
. Under Construction 'INotes 2 and 61 453,888 323.504 Current Liabilities Total Electric Plant 640,212 511.980 Current Portion of Long-Terrn Debt 4,085 I40 -
Notes Payable (Note di 3,674 3.912 Other Property and Equipment 4,735 4.463 Accounts Payable 13,205 9.538 Accumulated Depreciation (Note 31 (925) 1580) Accrued Expenses I I,066' II,197 Contractors' Retention 77 461 3.810 3.883 32.107 ' 25.248 Total Property. Plant and Equipment 644,022 515.863 Commitments and Cortingencies (Notes 6 and 8) Advances from Members (Note Il 128 128 Special Funds (Notes 2 and 4) 363,617 500.084 SI,139,080 $1,141.561 Current Assets Cash and Temporary investments 6,040 4.582 The accompanying notes are an integral part of these financial statements. Accounts Receivable 6,072 2.893 Unbilled Revenues (Note 21 8,384 7.031 Inventories-principally fuel oil on a last-in, first-out basis 6,380 8.954 Prepaid Expenses 509 235 27,385 23.695 Deferred Charges Costs Recoverable in the Future Under Terms of the Power Sales Agreements (Notes 2 and 51 70,052 67.942 Unamortized Debt Discount and Expenses 32.546 33.654 Otbar 1,458 323 104.056 101.919
$1,139,080 $1,141.561
g --- -
'Massachu'setts Municip$1 Wholesale Electric Company? i
.j, Statementr of Operationsi -
For the years ended December 31,1983 and 1982 '
- 4 (Dollars in Thousands) l _
l983 1982- + Revenues: Electric Sales For Resale $135,997 : $100,446 i Service Revenues ; 2,196 2.864 interest income 50,158 60,526 Total Revenues and Interest incomt $188,351 $163.836 Operating and Service Expenses: Fuel Used in Electric Generation $ 25,307 - S 23.021 4 Purchased Power 82,964 67,213 . 1' Other Operating : 7,044. 7,196 !
- Maintenance 1,723' I,494 Depreciation (Note 31 8,302 6,085 Taxes Other Than Income I.294- 775 126,634 105.784 Interest Expense:
Interest Charges . 101,584 88,265 Interest Charged to Projects During Construction (Note 2) (37,362) i18,313) 64,222 69,952 (Gain) Loss on Cancelled Units : Note 51 (277) 1.679 (Gain) on Retirement of Debt (Notes 4 and si (118) (1,304) (395) 375 Costs Recoverable in the Future Under Terms of the Power Sales Agreements INotes 2 and si -(2,110) (12,275) S188,351 SI63.836 . The accompanying notes are an integral part of these financial statements.
____;.3 ___ __ __ Massachusetts Municipal Wholesale Electric Company M" '
~;:
Statement of Changes in Financial Position. . . l For the years ended December 31,1983 and 1982 ,
', s
!- IDollars in Thousands) > l 1983 1982 Murces of Funds stimal Sources: ' Revenues and income $ 188,351 S163.836 Expenses (188,351) (163,836F Chirges Not involving Funds: Depreciation (Note h 8,302 6.085 Amortization INote 2) I,104 1.121 9,406 7,206 Extemal Sources: Bond Proceeds - 245,000 Total Sources of Funds 9,406 252.206 Uses of Funds: Additions to Plant and Construction Work in Progress 136,582 122,082 Increase in Costs Recoverable in the Future Under Terms of the Power Sales Agreements (Notes 2 and s) 2,110 12,275 Note Repayments 3,400 9.635 Bond Redemptions 5,940 2,985 increase (Decrease) in Debt Discount (4) 7,447 increase (Decrease) in Other Deferred Charges 1,135 (709) Other (121)- 95 149,042 153.810 Changes in Working Capital, including Notes Payable and Special Funds $(139,636) $ 98.396 Change in Working Capital Consists of: Increase IDecrease) in Special Funds S(I36,467) $ 108.516 increase (Decrease) in Current Assets - Cash and Temporary investments 1,458 18 Accounts Receivable 3,179 (1.497) Unbilled Revenues 1,353 (610) Inventories (2,574) (6.457) Prepaid Expenses 274 (169) (132,777) 4 _ 9.801 (Increase) Decrease in Notes Payable 238 1244) (Ir:creasel Decrease in Current IJabilities - Current Maturities of Long-Term Debt (3,945) (5) Accounts Payable (3,6C) (379) Accrued Expenses 131 0.065) Contractors' Retention 384 2.288 (6,859) ti,405) S(139.636) $ 98,346 The accompanying notes are an integral part of these financial statements.
Massachusetts Municipal Wholesalh Electric Company; ' NotesJto Financial Statements
- December 31,1983 and 1982
- (1) Massachusetts Municipal Wholesale Electric Company (MMWEC) (2) Significant Accounting Policies MMWEC is a political subdivision of the Commonwealth of Massachusetts. Interest Charged to Projects During Construction
- authorized to issue revenue bonds secured by power sales agreements with its MMWEC capitalizes interest as an element of the cost of electric plant and members and other electric systems to finance the construction and ownership of other property during the period it is under construction. A corresponding amount is electric power facilities. _
reflected as a reduction of interest expense. The amount of interest capitalized is i A Massachusetts municipal electnc department authorized by majority vote based on the cost of debt, including amortization of debt discount and expenses, of the city's or town's governing body may become a member by applying for related to each project, net of investment income derived from unexpended project admission to MMWEC and agreeing to comply with the terms and conditions of funds. . ! membership as outlined within the MMWEC By-l.aws. As of December 31,1983. thirty-four Massachusetts municipalities had received votes of their respective city councils Special Funds or town meetings authorizing membership by their respective municipal electric Proceeds from the sales of Revenue Bonds are deposited with Trustees to be : systems. Invested until they are required for construction or debt service payments. Note
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proceeds are placed with depositories and are invested by MMWEC The investments Power Supply System are carried at cost. adjusted for amortization of premium or discount. MMWEC is obtaining power supply capacity by acquiring interests in various generating units from investor-owned utilities and the operation of its own electric Costs Recoverable in the Future generating facilities. See Note 6 for a discussion of MMWEC's construction program Under Terms of the Power Sales Agreements and commitments related to these facilities. In addition. MMWEC contracts for power Under the terms of the Power Sales Agreements with project participants, for resale to its members. revenues include billings to participants for debt principal and interest payments in the period in which theyare due. For financial reporting purposes. MMWEC recognizes Advances currently the depreciation and amortization expense of assets financed by bond MMWEC is authorized to assess each member to provide working capital. principal. The differences between current expenses and amounts billed currently Advances may be retumed to the members upon approval by MMWFC's Board of under terms of the Power Sales Agreements are deferred to the future periods in Directors or the dissolution of MMWEC The Board of Directors has authorized working which these amounts will be recovered through revenues. capital advances of up to $2.000.000 from Project Construction Funds in addition to amounts assessed members. At December 31.1983 and 1982, advances from Project Unbilled Revenues Construction Funds amounted to $ 1,500,000 and $2,000.000, respectively. These inter- MMWEC bills its members for costs incurred in providing services and fund advances have been eliminated for primary financial statement reporting purchased power obtained on their behalf under terms of the Service Agreement and purposes. the Power Sales Agreements. Revenues are recorded in the accounts as the expenses are incurred. Amounts which are not yet billed are included in Unbilled Revenues in the acrompanying balance sheets.
Massachusetts Municipal Wholesale Electric Company
~f n ,l;
~
Notes to Financial Statements December 31,1983 and 1982 a (3) Depreciation Net Interest . December 31,. Issue . Cost 1983 1982 Property, plant and equipment in service is depreciated using the straight- (Dollars in Thousands) . line m thod. Depreciation of electric plant in service using an average rate of 41 for
$ 67,500 S 68,775-1983 and 1982 amounted to $8.078.000 and $5,870,000, respectively. Depreciation of 1976 Series A 7.2%
174,405 174,785 other property and equipment for 1983 aggregated $357,000, of which $133,000 was 1977 Series A . 6.4% 83,500 83,500 allocated to projects under construction and in operation representing an average 1977 Series B 6.1% 75,000 75,000 rate of 8%. The 1982 depreciation of other property and equipment aggregated 1978 Series A 6.8% 150,000 150,000
$396.000 of which $181,000 was allocated to projects under construction and in 1979 Series A 7.0%
1980 Series A 10.2% 1 I I,660 112,000 operation, and represents an average rate of 9%. 1981 Series A 12.3% 100,000 100.000 1981 Series B 13.4% 100,000 100,000 (4) Debt 115,000 - 115,000 1982 Series A 13.4% power Supply System Revenue Bonds 1982 Series B 10.2% 130,0 _00 - 130.000 To finance construction or ownership interests in electric generating projects, 1,107,065 1,109,060 MMWEC issues Power Supply System Revenue Bonds. The Bonds are secured by a pledge of the revenues derived by MMWEC, under terms of Power Sales Agreements, Less: Current Portion 4,085 140 from the ownership and operation of its pawer supply system. Pursuant to the Power Sales Agreements with the participants, each participant is obl gated to pay its share Total Power Supply System Revenue Bonds $1,102,980 $1,108,920 of the actual costs relating to the generating units p!anned or under construction. The participants' obligations are not contingent u pon the com pletion or operational stat us of the units. On January iI,1984. MMWEC sold an additional S95 million in 1984 Series A The Power Supply System Revenue Bonds consist of Serial and Term Bonds. Revenue Bonds at a net interest cost of I 1.0%. Annual principal payments for this issue The Bonds, which are comprised of the following issues, are subject to optional are scheduled to begin in 1989. redemption approximately ten years after the issue date, at 103% of the principal The aggregate annual principal payments due in the next five years are as amount, descending periodically thereafter to 100%. follows: 1984 - $4,085,000; 1985 - $5.736,000; 1986 - S6.096,000; 1987 - $8.011,000 and 1988 - $1 I,190,500. MMWEC financings other than obligations maturing within one year require Massachusetts Department of Public Utilities (DPU) approval. The estimated financings required for MMWEC's Nuclear Projects Nos. 3,4 and 5 and Project No. 6 exceed the DPU financing approvals to date and further DPU approval will be required. At December 31,1983, approximately $234 million of amounts included in Special Funds on the balance sheet were available to fund construction costs. Present cash flow projections indicate that funds are required.to satisfy interest and construction expenditures in accordance with its joint ownership agreements and Bond Resolution by mid-1985 for Nuclear Project No. 4 and late 1984 for Project No. 6. MMWEC is currently engaged in a proceeding before the DPU seeldng approval for an additional S232 million of financing authority for Nuclear Project No. 4 and Project No. 6.
^1his request for additional financing authority, as has been the case in several prior proceedings, is being contested by several intervenors, including the Attorney General. MMWEC believes that the additional financing authority will be granted. The
Massachusetts Municipal Wholesale Electrid Cbmpany/
- Notes to Financial Statements '
December 31,1983 and 1982 (4) Debt tentinuce Notes Payable issuance of additional debt, its timing and size is dependent upon construction cash MMWEC maintained with a group of banks a $30.000,000 revolving line of ; flow requirements and financial market conditions prevailing at the time. credit to be used to finance fuel oil for the Stony Brook projects. The borrowings under = MMWEC has determined that$11,000.000 of the 1980 Series A bond proceeds this line of credit are at a floating interest rat e of 70% of the lead bank's prime rate plus allocated for the construction of the Stony Brook Peaking Unit, which is in operation, a commitment fee of M of 1% per annum on the unused portion of the line.The current . can be utilized to retire bonds outstanding The timing of such retirements cannot be agreement is scheduled to terminate on July I,1984, at which time it may be extended. determined at this time. During 1983, $340,000 of Peaking Unit bonds were retired at converted to a term loan. or be refinanced. Borrowings under the line are secured by gains amounting to $41,100. fuel oil inventory and are payable from rever.ues derived by MMWEC from fuel charges - under the Power Sales Agreements for the Stony Brook projects. Under this line of ' Net Revenue Available For Debt Service credit MMWEC had outstanding balances of $3.865.000 and S7.265,000 as of - In accordance with the provisions of the MMWEC Bond Resolution. MMWEC December 31,1983 and 1982, respectively. covenants to the bondholders that it shall fix, revise and collect rates, tolls, rents and MMWEC decreased its $17,000.000 revolving line of credit to $14,000.000 in other fees and charges sufficient to produce revenues to pay all operating and November 1983. This line of credit is used to temporarily finance certain power maintenance expenses and principal of, premium if any, and the interest on the Bonds purchases made by MMWEC for resale to the power purchase contract participants. and to pay all other obligations against its revenue. Revenues, which include Borrowings are secured by the corresponding receivables from these participants.The applicable interest earnings from investments, are required to equal 1.10 times the current agreement is scheduled to terminate on November 20.1984. MMWEC may an nual debt service. for each contract year end ing lune 30, after deduction of operat ing request that the banks involved renew the credit agreement for an additional and maintenance expenses and exclusive of depreciation. period of one year by placing a request for such extension with the lead bank at least ! For the contract year ended June 30,1983 MMWEC met the Bond Resolution 90 days prior to the end of the revolving credit period. The balances outstanding on debt service coverage requirements for the Wyman and Stony Brook Intermediate and December 31,1983 and 1982 were $3.674.000 and $3,912.000 recpectively. Borrowings Peaking Projects and. for the contract year ended June 30,1982, for the Wyman Project. under this line are at a rate of 70% of the bank's prime rate plus a commitment fee.The - Debt service for the Stony Brook Intermediate and Peaking Projects was funded to commitment fee is equal to H of 1% perannum on the unused portion of the line based July 1,1982 and January I,1983, respectively. upon the average daily principal amount of the loan outstanding when it does not at least equal 20% of the loan commitment. Contract Year Ended June 30, 1983 1982 (5) Unit Cancellations Debt Service Coverage: MMWEC's Nuclear Mix No. I project is comprised of ownership interests in Revenues $37,485,000 $3.004.000 the Millstone No. 3, Seabrook Nos. I and 2 and Pilgrim No. 2 units. On Octaber 22,1981 Other Billings 556,000 - the Boston Edison Company cancelled the Pilgrim No. 2 Unit. MMWEC's costs Reserve and Contingency Fund Billings I,755,000 70.000 associated with the unit, which aggregated S53.274.000 and $53,155.000 as of l Total 39.796,000 3,074.000 December 31.1983 and 1982. respectively, were deferred and will be recovered under Deduct-Operation and Maintenance Expenses 20,494,000 2.304.000 the terms of the Power Sales Agreements. Future expenditures for contract settlements. Available Revenues Net of Expenses $19.302,000 $ 770.000 which are projected to be offset by credits, will be recorded by MMWEC as they are incurred. MMWEC's Nuclear Mix No. 2 project units (comprised of NEP Nos. I and 2 and l Debt Service Requirement $17,547,000 $ 699.000 Montague Nos. I and 2 sponsored by New England Power Company and Northeast Utilities, respectivel% were cancelled prior to 1981. With a portion of the remaining i Coverage il10% Required) I10% i10% construction funds. MMWEC retired $1,515.000 of Nuclear Mix No. 2 bonds in 1983 and
$2.845.000 in 1982 at gains of $77,000 and $1,304.000 respectively. Retirement of L
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Massachusetts Municipal Wholesale Electric Company Notes to Financial Statements 4 V December 31,1983 and 1982 (5) Unit Cancellations kontinue administrative, judicial or legislative relief, cancellation of Unit 2 would have serious - Nucic.ar Mix No. 2 bonds during 1983 comprised the remaining balance'of bonds consequences for the continuation of the Company's construction program and payable on that power mix. The gain on the retirement of these bonds eliminated the business operations." PSNH has also indicated that adequate and timely rate : amounts deferred as Costs Recoverable in the Future Under Terms of the Power Sales increases and extemal financmg are both essential to enable PSNH to continue its Agreements for Nuclear Mix No. 2. construction program and business operations. At the March I,1984 meeting the loint . Owners voted down a proposed resolution to cancel Unit 2. Participants holding'41.8% C) Construction and Financing of the project (including PSNH's 36.6%) voted against cancellation,39.9% voted for : cancellation and holders of 18.3% of the project (including MMWECs i 1.6%) abstained. ' MMWECs current construction and financing efforts are concentrated on joint An affirmative vote of 80% of the ownership interest is required to cancel the unit. ownership interests in various nuclear power units. A substantial portion of MMWECs As of December 31,1983, MMWECs investment'in Unit 2, excluding fuel and construction and financing program is attributable to its ownership interest in interest during construction amounted to approximately $65 million. Completion of Seabrook Units I and 2. which are currently being constructed by Public Service the Seabrook units will, in any event, be dependent upon a number of factors, Company of New Hampshire (PSNHl. This project has experienced numerous delays including projected load growth in the region, the cost and availability of alternative due to regulatory, legal and other problems resulting in significant increases in cost sources of power, financial, regulatory, environmental and safety considerations and estimates. public attitudes toward nuclear power. Accordingly, it is not possible to predict now Late in 1982, PSNH announced a 43% increase from its 1981 estimate of the whether Unit 2 will be completed or cancelled. total cost of the Seabrook project and delayed the operation dates of the units to Under provisions of MMWECs Power Sales Agreements, all costs associated December 1984 and July 1987. At a March I,1984 meeting of the Seabrook joint with a project are obligations of project participants whether or not the unit or units Owners, PSNH presented updated cost estimates and completion schedules. These comprising the project become operational. schedules projected in-service dates of July 1986 for Unit I and December 1990 for The cost estimates and completion dates for the Seabrook units and other Unit 2, and a total project cost of 57 billion or a 72% increase from its November 1982 units listed on the following table are based on the latest information available from estimate. Approximately one-half of the 59 billion estimate is related to each unit and is the lead participant, adjusted by MMWEC and its Consulting Engineer to reflect later based on a continuation of reduced construction activity on Unit 2 until fuel is loaded completion dates and other considerations for power supply and financial planning in Unit 1. Different costs have been estimated by the project engineer and others* purposes. The Seabrook project cost estimates and completion dates are based on including independent consultants engaged by the loint Owners to review and the assumption that a decision is made to resume construction activity on Seabrook evaluate PSNH's estimated cost and completion dates. No new estimates were Unit 2 in 1986 to enable its completion by 1992. ccepted by the joint Owners pending further analysis by the management of PSNH intended to shorten the time sched ule and to red uce the related costs. This analysis is expected to be completed within 90 days of the meeting. Each of the Seabrook joint Owners and regulatory bodies which have considered the matter to date favor prompt completion of Unit 1. However, certain loint Owners either of their own volition or in response to suggestions or orders from their regulators have been attempting unsuccessfully to sell some or all of their interest in the Seabrook Project or have been seeking cancellation of Unit 2 because of concem by the loint Owners or their reguiators as to increases in its projected costs, delays in scheduled completion and their need for its power. In September,1983, the Seabrook joint Owners voted that " expenditures for Unit 2 shall be reduced to the lowest feasible level while participants evaluate their power supply options with respect to that Unit .the reduced expenditures level will be continued until fuel loading for Unit 1." PSNH has indicated that "without
gm Massachusetts Municipal Wholesale Electric Company; . Notes to Financial Statements. December 31,1983 and 1982 - (6) Construction and Financing (continued) (7) Retirement Plan (Dollars in Thousands) Retirement benefits are provided to MMWEC's eligible employees throughi Proposed Total its participation in the Retirement and Security Program sponsored by the National MMWEC Costs to Estimated Rural Electric Cooperative Association. It is MMWEC's policy to fund all accrued tion ate 198 1982 Cos n s. nsion costs weW68.8 Wor W83 an@00, Moi 1982. Wonnation from ' the Plan Administrator is not available to permit MMWEC to determine its share of NuclearMix Na I (SeeNote51 accumulated benefits nor assets available for plan benefits. There are no unfunded Millstone Unit Na 3 INortheast Utilities) - vested benefits associated with this Plan. - 1986 18.4 $ 27,345 $ 20.334 $ 73.959 Seabrook Units Nos. I (8) Commitments and Contingencies and 2 IPublic Service Ca of N.HJ Power Purchases
- 1986 and 1992 3.7 5,498 3.334 14.827 MMWEC has entered into a contract with the New Brunswick Electric Power 22.1 $ 32.843 $ 23.668 S 88.786 Commission (NBEPC) for the purchase of 100 MW of capacity from the Point Lepreau nuclear unit.The contract became effective in February,1983, the unit's in-service date, Nuclear Project Na 3 and is effective through October 1987, with options for extensions.
Millstone Unit Na 3 MMWEC has also contracted with New England Power Company for 150 MWof INortheast Utilities) - capxity, of which 75 MW is oil-fired and the other 75 MW coal-fired. This contract 1986 36 8 e 1,;a8 $ 50.285 $ 127.768 period is from November 1981 through October 1984. Nuclear Project No. 4 The contract payment provisions require MMWEC to pay in all events certain s Seabrook Units Nos. I fixed, operation, maintenance and other charges relating to the units. The fixed and 2 (Public Service Co. minimum payments for the next five years as estimated by MMWEC for its planning of N.H.)- 1986 and l992 99.7 $125.387 $ 90,703 $ 417.255 purposes are as follows: 1984 - $46.917.000; l 985 - $36.000.000; 1986 - $36.000.000; Nudear Project N 1987 - $30.000,000 and 1988 is none at this time. g MMWEC has entered into corresponding agreements, with its members and and 21Public Service Co. one other utility, to resell the power. of N Hj - 1986 and 1992 25.2 $ 32.940 $ 24.000 $ 108.405 Litigation Project No. 6 As a consequence of an accident on the Stony Brook construction site, suits for U ts N
, damages have been initiated by employees of one of the contractors and members of of N H i- 1986and 1992 138 0 $192.076 $134.017 $ 571.561 the employees' families naming the contractor, the construction management firm.
MMWEC and others as defendants. The amount of damages claimed aggregate Sears Island Project $54 million. MMWEC has denied any liability and, in the opinion of MMWEC's counsel. Sears Island Coal Unit the likelihood of any such suits being successful against MMWEC is remote. No I (Central Maine Power) - 1995 78 9 $ 714 $ 831 Ill Total 400.7 S453.888 $323.508 $1.313.775 Ill Due to uncertainties associated with the Sears Island Project, the T0tal Estimated MMWEC Cost cannot be determined.
m . Massachusetts Municipal Wholesale Electric Company , Notes to Financial Statements , December 31.1983 and 1982 (9) Supplementary Information to Disclose the Effects of Changing Statement of Operations Adjusted for Changing Prices 1 Prices (Unaudited) For the Year Ended December 31,'1983 The following supplementary information has been prepared in accordance with the Statement of Financial Accounting Standards No. 33 for the purpose of Conventional Constant Dollar Current Cost providing certain information about the effeu of changing prices. It should be viewed ~ Historical Average 1983 Average 1983 as an estimate of the approximate effect of inflation rather than as a precise measure. Cost Dollars Dollars Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing power, as measured by the Consumer Price Index for All Urban Revenues and Interest income $188.351 Sl88.351 $188.351 Consumers ICPI-U). Current cost amounts reflect the changes in specific prices of plant from tha date the plant was acquired to the present, and differ from constant dollar Fuel Used in Electric Generation S 25.307 $ 25.307 $ 25.307 amounts to the extent that specific prices have increased more or less rapidly than the Purchased Power 82.964 82,964 82.964 general rate of inflation. The current cost of electric generating and transmission plant OtherOperationsand Maintenance 8.767 8.767 8.767 and construction work in progress is determined primarily by indexing plant by the Tx er Than income 24 4 Handy-Whitman Index of Public Utility Construction Costs. Since the utility plant is not expected to be replaced precisely in kind. current cost does not represent the Interest Expense 68.222 64.222 64.222 replacement cost of MMWEC's productive capacity. Fuel inventories and the cost of fossil fuel used in generation have not been Gain on Cancelled Units (277) (2771 (277) restated from their historical cost in nominal dollars. Under provisions of the power Gain on Extinguishment of Debt il18) til8I (I18) sales agreements, revenues are limited to the recovery of fuel at actual cost. For this reason fuel inventories are effectively monetary assets. less osts RecmaNe in Futum Wm M OM Depreciation is determined by multiplying MMWEC's historical cost depreci-ation by the appropriate index conversion factors. S'88'353 8388'35' 8I88'35' Under the MMWEC power sales agreements which govem its billing procedures, only the principal maturities of debt relating to the historical cost of the Gain from Decline in Purchasing utility property are recoverable. Therefore, the amount of plant stated in terms of P wer f Net Amounts Owed S 2I.384 S 21.384 constant dollars or current cost that exceeds the historical cost of plant has been adjusted down to its net recoverable costs. Reduction to Net Recoverable During a period of inflation, holders of monetary assets suffer a loss of general Amount S 19.329 S 18.816 purchasing power while holders of monetary liabilities, such as MMWEC. experience a gain. The gain from the decline in purchasing power of net amounts owed is primarily Specific Prices of Property Plant attributable to the substantial amount of debt which has been used to finance and Construction Work in property, plant and equipment. Since the recovery of utility plant is limited to Progress Held During the Year amounts based on historical costs. the holding gains on debt are in effect realized by increased by S23.381 which was MMWEC's members. Iess than the increase Caused by Inflation by S 1.351
Massachusetts Municipal Wholesale Electric Company Notes to Financial Statements December 31,1983 and 1982 (9) Supplementary Information to Disclose the Effects of Changing Prices (Unaudited) funtinuac - Five Year Comparison of Selected Supplementary Financial Data Adjusted to Average 1983 Dollars (Except Historical Amounts) for the Effects of Changing Prices IDollars in Thousands) Year Ended December 31, 1983 1982 1981 1980 1979 Revenuesand Interest income Historical SIS 8,35I S161.836 S 82,083 $47,156 $29.571 Adjusted for inflation $188,351 S169,112 S 89,920 $57,016 $40,589 Net Property Plant and Equipment. Including Construction Work in Progress Before Write-down to Net Recoverable Amount: Historical S644,022 S515.863 S399,766 Adjusted for Inflation $746,738 S622.017 $502.862 Adjusted for Specific Price Changes $732,001 S608,417 S493,695-General Information Gain from Decline in Purchasing Power of Net Amounts Owed S 21,384 S 17,150 $ 33,152 Average Rate of inflation (based on CPI-U) 3.2% 6.1 % 10.4% 13.5% 11.2%
MMWEC O$cers MMWEC Trustee and Horst Huehmer CHAOMAN oF THE BOARD a of Directors Paging Agents Horst Huehmer Bond Fund Trustee Bank of New England, N.A. MANAGER. HUDSON Contistatal llIIneds Bank and Trust Besten, Massa (nusetts Francis H. King ICEsIDENT Censpany of Chirape, Illineis 1976 Series A Bonds Richard L Bailey 1977 Series A Bonds George E. Leary MANAGER. MARBLEHEAD Paying Agents 1977 Series B Bonds TCEAsURER ConlInfateI IIIIneis Bank and Trust Francis H. King Company of Chicago, Illinois Shawneut Bank of Besten, N.A. Richard K. Byrne HoLYoKE-CUBERNAToRLAL APPolNTEE 1976 Series A Bonds Besten Massachasetts CENERAL MANAGER AND SECRETARY 1977 Series A Bonds 1978 Series A Bonds Curtis Lanciani 1977 Series B Bonds 1979 Series A Bonds Thomas E. McHugh MANAGER. L&TTLEToN 1978 Series A Bonds 1980 Series A Bonds DEPUTY GENERAL MANAGER AND 1979 Series A Bonds 1981 Series A Bonds assistant SECRETARY Neil Murray 1980 Series A Bonds 1981 Series B Bonds MANAGER. HOLDEN 1981 Series A Bonds 1982 Series A Bonds Walter Gaebler 11 1981 Series B Bonds 1982 Series B Bonds assistant TREASURER Bruce Patten 1982 Series A Bonds MANAGER, PEABODY 1982 Series B Bonds Maurice 1. Ferriter CERERAL COUNSEL AND assistant SECRETARY Nathan S. Paven Citi6ank, N.A., New York, New York ATTORNEY. Boston-CUBERNAToR1AL APPolNTEE 1976 Series A Bonds 1977 Series A Bonds Norbert Rhinerson 1977 Series B Bonds MANAGER. READING 1978 Series A Bonds 1979 Series A Bonds William Wallace 1980 Series A Bonds MANAGER. WAKERELD 1981 Series A Bonds 1981 Series B Bonds 1982 Series A Bonds 1982 Series B Bonds
The 1983 MMWEC Annual Report was produced by the Public Affairs Office of theMassachusettsMunicipalWholesale Electric Company. Copies of this report and sup-piemental financial information can be obtained, free of charge, by writing to the Public Affairs Office. Massachusetts Munic-ipal Wholesale Electric Company, P.O. Box 426 Ludlow, MA 01056. All requests for information about MMWEC should be directed to this office.
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